Hand v. Missouri-Kansas Pipe Line Co.
| Decision Date | 18 March 1944 |
| Docket Number | Civil Action No. 386. |
| Citation | 54 F. Supp. 649 |
| Parties | HAND v. MISSOURI-KANSAS PIPE LINE CO. et al. |
| Court | U.S. District Court — District of Delaware |
Edwin D. Steel (of Morris, Steel & Nichols), of Wilmington, Del., for plaintiff.
Aaron Pinger (of Richards, Layton & Pinger), of Wilmington, Del., for individual defendants.
Stewart Lynch, of Wilmington, Del., for corporate defendant.
Defendants contend that the question to be decided is to what extent corporate funds may be expended in supporting the management's side of a controversy against stockholders who are in disagreement with the management and who are seeking in a contest to elect directors to substitute their views or their control for the views and control of the present management. Plaintiff contends that this is not the question for decision. He argues that the professional proxy solicitors were first approached in the early part of January, 1944, at a time when management had no definite plan to submit to the stockholders; and that the first notice stockholders received of the management's plan was that contained in the notices of the annual meeting which were sent on February 15, 1944. He argues from this that at the time the proxy solicitors were engaged in early January it could have been for one purpose only, i. e., to insure the procurement of sufficient proxies to establish the reelection of the present directors. As Delaware law is applicable, he relies on Hall v. Trans-Lux Daylight Picture Screen Corp., 20 Del.Ch. 78, 171 A. 226, and argues the late Chancellor Wolcott held that corporate funds could not be expended by directors for the purpose of their own reelection. Defendants rely on the same authority and argue, quite correctly I think, that the precise decision in the Hall case was that where stockholders are called on to decide controversies over substantial questions of policy as distinguished from inconsequential matters and personnel of management, directors may make such expenditures from corporate funds as are reasonably necessary to inform stockholders of considerations in support of the policy advocated by directors under attack, and in such communications directors may solicit proxies in their favor.1
Although the present management was informed on February 28, 1944, that the Stockholders' Committee was in favor of the plan of liquidation and that it was not, therefore, in disagreement on that policy question, nevertheless, at least two other groups are soliciting proxies in opposition to the plan. True, one is a stockholder holding a small number of shares; but the other stockholder has played an important role in Mokan's past and is familiar with the policy questions confronting the company. His communications to the stockholders show that he is in extreme disagreement with management's plan and their policies in general. While he wrote a letter to the Stockholders' Committee informing it that he would propose an amendment to the plan at the annual meeting, and if he were unsuccessful in having the amendment carried he would then vote for the plan, the fact remains that he has crossed swords with management on questions of policy and is urging all stockholders to adopt his views. Sharp questions of fact must first be determined before the legal decision can be made as to whether the directors were justified in spending corporate funds by engaging professional proxy solicitors early in January and paying them for their services up to March 6 when the stockholder in question first sent out his proxy material. This question can only be determined after a final hearing, in view of the fact that defendants make an issue of this question. After all the facts are in, it will be necessary to decide (1) whether there was a substantial question of...
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...court indicated the moving party's pleading defendants' Answers here made out "no case for an injunction." 12 Hand v. Missouri-Kansas Pipe Line Co., D.C.Del., 54 F.Supp. 649, 651. 13 Campbell v. Loew's Incorporated, Del. Ch., 134 A.2d 565, 14 5 Fletcher, Cyc. etc. Private Corporations, 1952......
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